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Elon’s Last Days

|About: Tesla, Inc. (TSLA)

The SEC’s February 26 letter to Tesla’s lawyer is devastating.

It says Tesla is not responsive to its previous questions.

It also asks new probing questions, all pointing to new lines of attack and aggressiveness.

The key going forward will be if the Tesla board of directors feel like they may be subject to personal liability.

If that equation flips, they may have to force Elon Musk away from the Tesla CEO position -- or more.

Read this February 26 three-page letter from the Securities and Exchange Commission (SEC) to a lawyer (Brad Bondi) who apparently represents Tesla (TSLA): TeslaCharts on Twitter

Pay particular attention to points 5-7. I’m not going to copy/paste the text here -- just click and read the relatively brief three-page text yourselves. Basically, the SEC is digging in deeper, in two ways:

  1. SEC says Tesla is not being responsive to its requests. When the government says you are not playing by the procedural rules, watch out. Witness Inspector Mueller ordering a pre-dawn, no-knock, raid on Paul Manafort. I’m not saying the SEC will do something exactly like that in this case, but if you have someone in the government’s crosshairs who is deemed to simply ignore police commands, things can take the darkest of turns.

  2. SEC is asking for additional materials, probing deeper. It’s clear that the SEC knows Tesla is up to no good here, and now they are digging where the ground is soft. This was just after Tesla’s General Counsel (Dane Butswinkas) resigned. Small wonder!

One thing is very clear here: Elon Musk’s, and Tesla’s, combative approach to the SEC, basically saying that the words in the settlement don’t mean what those words usually mean in the English language, aren’t sitting well with the SEC. It has driven the career people at the SEC up the wall. The Grizzly bear has been poked -- for the second or third time in just a few months. It’s wise to let Grizzlies hibernate.

It’s obvious that the Tesla board of directors has been doing everything to protect Elon Musk. They know that without Elon, the ability to raise money may be gone. While nothing is 100% for certain, one might conclude that if Elon has to step down at CEO of Tesla, the stock would collapse. Neither Elon nor the board of directors, can afford for that to happen.

However, sometimes the defendant has no choice. If at some point the SEC -- perhaps with help from the DOJ -- were to move against Tesla as a company, and the board of directors either collectively or individually -- then the heat would be on. Would any and all of the Directors on the board be willing to sacrifice themselves for Elon?

I think not.

So that is now the question going forward: If the SEC (and the DOJ) were to make a move on the board of directors, the dam may break.

I don’t know if the SEC (and DOJ) are making such a move or not, to a meaningful degree. However, when you read the letter cited above, from February 26, I think the probability now looks higher than it seemed even less than a month ago.

That is the key to the outcome of this SEC (and perhaps DOJ) fight against Elon and Tesla: Whether the board of directors feel that they are entering the zone of personal responsibility. If they feel like the rest of their lives are at stake, they may cut Elon loose -- even if it means that Tesla and its stock both go down hard.

As Winston Churchill said, “Sometimes doing your best is not good enough. Sometimes you must do what is required.”

All of this is speculation, of course. Maybe the SEC folds, and asks for a minor concession. Maybe Tesla and Elon fold and beg for forgiveness. Maybe Tesla and Elon get another chance, after yet another gentle stroke on the wrist.

SEC’s letter from February 26 suggest the SEC is on a warpath, and they are not seeing Elon and Tesla as interested in cooperating at all. In my opinion, this now means that we have to start looking at an increasing probability of Elon Musk being driven out of the company.

These may be Elon’s last days as CEO of Tesla.

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Disclosure: I am/we are short TSLA.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.